Chevron (CVX) offers scant 1% dividend increase, but has excellent upstream growth prospects

Chevron’s (CVX) dividend was just increased a penny, but the overall yield is above that of the S&P 500 Index at 4%.  Chevron is one of the largest integrated energy companies in the world concentrating both on exploration, production, and refining. It produces an astounding 2.5 million of barrels of oil equivalent a day. It maintains a large refinery business in the United States, Asia, and South Africa. Oil reserves amount to just over 11 million barrels.

The quarterly dividend for the December payment will be $1.08 versus the prior year rate of $1.07 per share. Chevron remains a dividend aristocrat, paying and increasing dividend for 25 years. Based upon its above average yield, 3 year dividend growth rate of 5.3%, and excellent financial rating, CVX remains a solid energy stock candidate and a member of our Top 100 Dividend Stock List (see below).

top-100

The dividend will be paid at the new higher rate on December 12, 2016, to shareholders of record at close of business on November 18, 2016. Chevron Corp. is currently priced at $101.19. Listed in the table below are the quarterly dividend payments since 2010.

Date Quarterly Dividend
11/18/2016 1.08
8/17/2016 1.07
5/17/2016 1.07
2/16/2016 1.07
11/16/2015 1.07
8/17/2015 1.07
5/15/2015 1.07
2/12/2015 1.07
11/14/2014 1.07
8/15/2014 1.07
5/15/2014 1.07
2/12/2014 1
11/14/2013 1
8/15/2013 1
5/15/2013 1
2/13/2013 0.9
11/14/2012 0.9
8/15/2012 0.9
5/16/2012 0.9
2/15/2012 0.81
11/16/2011 0.81
8/17/2011 0.78
5/17/2011 0.78
2/14/2011 0.72
11/16/2010 0.72
8/17/2010 0.72
5/17/2010 0.72
2/12/2010 0.68

Quantative Analysis of Chevron Corp 

Category Value Score
Dividend Yield 4.25% 54
Dividend Growth (3 year avg) 5.3%  303
Forward P/E 22.80  255
S&P Financial Rating AA-  40
Beta 1.15  175
Total Score    827
% Yield 3 Year Div. Growth Rate 6 Year Div. Growth Rate SPS 2016 P/S Ratio 10 yr P/S Low 10 yr P/S High 5 yr max Yield % 5 yr lowest Yield %
4.25% 3.3% 7.2% 50.35 2.01 0.66 2.21 6.11% 2.87%

Analysis;   

Positives;

  • Chevron’s dividend yield is above that of the S&P 500 Index
  • Chevron maintains a 3 year dividend growth rate of 5.3%.
  • Chevron has paid out a dividend consecutively for the past 26 years.
  • Chevron maintains a credit rating of AA-. This is above investment grade

Negatives;

  • Chevron is trading at a high forward PE ratio due to lower oil prices weighing on profits. It also trades at an elevated historical price/sales (P/S) ratio.  From a relative valuation perspective based upon P/S, Chevron is slightly overvalued.
  • Chevron maintains a beta of 1.15, higher than the average company.

Chevron also released Q3 financial results. Chevron saw its revenues drop from $33 billion a year earlier to $29 billion as the low price of oil in the mid-40s continues to wreak havoc. Its net income dropped from $2.04 billion to $1.29 billion or $0.68 in earnings per share. The exploration segment of Chevron excelled, with revenue rising from $59 million to $454 million year-over-year.  A reduction in expenses and lower tax rates assisted in the gains. Downstream was more problematic. In the refining and marketing businesses, income dropped from $2.21 billion in Q3 2015 to $1.07 billion in Q3 2016.  Lower revenue from the chemical division and poor margins were the primary cause of the shortfall.

These Q3 results demonstrated the resolve of management.  Chevron indicated that  average realized prices for crude oil was down double-digits in the quarter compared to last year. As for the future, Chevron does offer one of the better investor profiles within the industry. Production growth should continue at a solid pace given its exposure to new projects in West Africa, Australia, Thailand, and in the Permain Basin. It also is moving heavily into natural gas with its project in Gorgon and Weatstone.  The question will be for the company wheather or not the two liquefied natural gas projects will be profitable given the potential oversupply.

Overall, Chevron remains a leader in the industry with one of the best upstream growth profiles of the majors. It also has a high dividend and very strong financial rating compared to its peers. It also is one of the few energy firms with continuity in dividend increases, Chevron qualifies as one of our Top 100 Dividend StocksIf you want to find out if a stock is in our model portfolio please subscribe to our monthly newsletter.  

Chevron Corp. Dividend Yield Chart (Click to enlarge)

cvx2

Chart Explanation:  Dividend growth stocks may be viewed favorably when the current yield is above historical readings for the past 5 years.

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